Activity Analysis, Cost Behavior, and Cost Estimation

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7
Chapter Seven

• Activity Analysis, Cost Behavior, and
  CostEstimation

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Step-Variable Costs
Total cost remainsconstant within anarrow range
ofactivity.
Cost
Activity
3
Step-Fixed Costs
90
Total cost doesnt change for a wide range of
activity, and then jumps to a new higher cost for
the next higher range of activity.
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Rent Cost in Thousands of Dollars
30
0
0 1,000 2,000
3,000 Rented Area (Square Feet)
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Semivariable Cost
Total semivariable cost
Variable Utility Charge
Total Utility Cost
Fixed MonthlyUtility Charge
Activity (Kilowatt Hours)
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Curvilinear Cost
CurvilinearCost Function
Activity
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Engineered, Committed and Discretionary Costs
Discretionary May be altered in the short term by
current managerial decisions.
Committed Long-term, cannot be reduced in the
short term.
Engineered Physical relationship with activity
measure.
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Cost Behavior in Other Industries
Examples of variable costs
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Cost Behavior in Other Industries
Examples of fixed costs
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Cost Estimation
Account-Classification Method
Visual-Fit Method
High-Low Method
Least-Squares Regression Method
Engineering Method of Cost Estimation
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Effect of Learningon Cost Behavior
A systematic relationship betweenthe amount of
experience inperforming a task and the
timerequired to carry out the task.
The average time per task declines by a constant
percentage each time the quantity of tasks
doubles.
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Learning Curve
Learning effectsare large initially.
Learning effectsbecome smaller, eventually
reaching steady state.
Average LaborTime per Unit
Cumulative Production Output
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End of Chapter 7